CONTENTS. Independent Auditors Report Consolidated Statements of Financial Position Consolidated Statements of Activities...

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2 CONTENTS Independent Auditors Report Consolidated Statements of Financial Position... 3 Consolidated Statements of Activities Consolidated Statements of Cash Flows... 6 Notes to the Consolidated Financial Statements Supplementary Financial Information: Schedule of Net Position Schedule of Revenues, Expenses, and Changes in Net Position Other Information

3 111 West Ocean Blvd. Twenty-Second Floor Long Beach, CA Von Karman Ave. Suite 1060 Irvine, CA South Figueroa St. Suite 4950 Los Angeles, CA To the Board of Governors of Cal State Fullerton Philanthropic Foundation: INDEPENDENT AUDITORS REPORT We have audited the accompanying consolidated financial statements of Cal State Fullerton Philanthropic Foundation (a nonprofit organization, the Foundation), which comprise the consolidated statements of financial position as of June 30, 2015 and 2014, and the related consolidated statements of activities and cash flows for the years then ended, and the related notes to the consolidated financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 1

4 Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Cal State Fullerton Philanthropic Foundation as of June 30, 2015 and 2014, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Other Matter Our audits were conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The schedules of net position, revenues, expenses, and changes in net position, and other information on pages 22 through 35 are presented for purposes of additional analysis and are not a required part of the consolidated financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The information has been subjected to the auditing procedures applied in the audits of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the consolidated financial statements as a whole. Long Beach, California September 10,

5 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION ASSETS June 30, (Restated) ASSETS Cash and cash equivalents, including restricted cash $ 20,956,833 $ 18,620,196 Investments 48,131,960 47,543,529 Contributions receivable, net of allowance for doubtful pledges 9,095,485 9,484,796 Accounts receivable 75,673 18,739 Prepaid expenses 74,283 86,650 Other receivables 92,209 95,052 Other assets 139,306 90,711 TOTAL ASSETS $ 78,565,749 $ 75,939,673 LIABILITIES AND NET ASSETS LIABILITIES Accounts payable and accrued liabilities $ 776,033 $ 1,309,282 Deposits held in custody for others 2,012,906 1,210,256 Total Liabilities 2,788,939 2,519,538 NET ASSETS Unrestricted 1,865,119 1,741,368 Temporarily restricted 23,880,398 23,264,414 Permanently restricted 50,031,293 48,414,353 Total Net Assets 75,776,810 73,420,135 TOTAL LIABILITIES AND NET ASSETS $ 78,565,749 $ 75,939,673 The accompanying notes are an integral part of these consolidated financial statements. 3

6 CONSOLIDATED STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2015 Temporarily Permanently Unrestricted Restricted Restricted Total REVENUES AND SUPPORT Contributions and gifts $ 9 $ 6,841,512 $ 1,685,454 $ 8,526,975 Campus programs 1,098,934 1,098,934 Alumni Association membership fees and programs 365, ,204 Investment income, net 533,091 ( 394,881) 28, ,179 Other income 83,050 18,455 ( 339) 101,166 Change in value of split interest agreements ( 58,765) ( 97,144) ( 155,909) Net assets released from restrictions 7,254,475 ( 7,254,475) Total Revenues and Support 7,870, ,984 1,616,940 10,103,549 EXPENSES Program Expenses: Campus 4,912,380 4,912,380 Scholarships 2,076,956 2,076,956 Alumni association 265, ,139 Total Program Expenses 7,254,475 7,254,475 Supporting Services: General and administrative 492, ,399 Total Supporting Services 492, ,399 Total Expenses 7,746,874 7,746,874 CHANGES IN NET ASSETS 123, ,984 1,616,940 2,356,675 NET ASSETS AT BEGINNING OF YEAR (RESTATED) 1,741,368 23,264,414 48,414,353 73,420,135 NET ASSETS AT END OF YEAR $ 1,865,119 $ 23,880,398 $ 50,031,293 $ 75,776,810 The accompanying notes are an integral part of these consolidated financial statements. 4

7 CONSOLIDATED STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2014 (RESTATED) Temporarily Permanently Unrestricted Restricted Restricted Total REVENUES AND SUPPORT Contributions and gifts $ 1,000 $ 5,379,800 $ 3,305,266 $ 8,686,066 Campus programs 757, ,467 Alumni Association membership fees and programs 344, ,788 Investment income, net 560,737 4,832,066 43,833 5,436,636 Other income 2,143 2,143 Change in value of split interest agreements 52, , ,368 Net assets released from restrictions 7,145,931 ( 7,145,931) Total Revenues and Support 7,709,811 4,220,949 3,551,708 15,482,468 EXPENSES Program Expenses: Campus 5,009,440 5,009,440 Scholarships 2,034,531 2,034,531 Alumni association 225, ,603 Total Program Expenses 7,269,574 7,269,574 Supporting Services: General and administrative 246, ,661 Total Supporting Services 246, ,661 Total Expenses 7,516,235 7,516,235 CHANGES IN NET ASSETS 193,576 4,220,949 3,551,708 7,966,233 NET ASSETS AT BEGINNING OF YEAR (RESTATED) 1,547,792 19,043,465 44,862,645 65,453,902 NET ASSETS AT END OF YEAR (RESTATED) $ 1,741,368 $ 23,264,414 $ 48,414,353 $ 73,420,135 The accompanying notes are an integral part of these consolidated financial statements. 5

8 CONSOLIDATED STATEMENTS OF CASH FLOWS For the Year Ended June 30, (Restated) CASH FLOWS FROM OPERATING ACTIVITIES Changes in net assets $ 2,356,675 $ 7,966,233 Adjustments to reconcile changes in net assets to net cash provided by operating activities: Contributions of investments ( 964,122) ( 64,257) Reinvested investment income ( 322,808) ( 429,360) Contributions restricted for long-term investments ( 1,166,887) ( 3,156,429) Change in discount on contributions receivable 626,595 ( 13,352) Change in allowance for doubtful pledges 73,349 22,010 Noncash change in split-interest agreements 155,909 ( 255,368) Realized (gain) loss on sale of contributed investments 1,697 ( 153) Net realized and unrealized (gain) loss on investments 750,946 ( 4,452,541) Net (increase) decrease in: Contributions receivable ( 466,542) 48,643 Accounts receivable ( 56,934) 103,795 Prepaid expenses 12,367 ( 18,650) Other assets and receivables ( 45,752) 81,860 Net increase (decrease) in: Accounts payable and accrued liabilities ( 533,249) 565,580 Deposits held in custody for others 802, ,517 Net Cash Provided By Operating Activities 1,223, ,528 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of investments ( 18,709,042) ( 8,486,242) Proceeds from sale of investments 17,692,257 8,210,506 Proceeds from sale of contributed investments 962,641 64,461 Net Cash Used In Investing Activities ( 54,144) ( 211,275) CASH FLOWS FROM FINANCING ACTIVITIES Contributions restricted for long-term investments 1,166,887 3,156,429 Net Cash Provided By Financing Activities 1,166,887 3,156,429 NET CHANGE IN CASH AND CASH EQUIVALENTS 2,336,637 3,808,682 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 18,620,196 14,811,514 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 20,956,833 $ 18,620,196 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid for: Income taxes None None Interest None None The accompanying notes are an integral part of these consolidated financial statements. 6

9 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2015 AND 2014 NOTE 1 Nature of Activities and Significant Accounting Policies Nature of Activities The Cal State Fullerton Philanthropic Foundation (the Foundation) is a nonprofit organization serving as an auxiliary to California State University, Fullerton (the University). The mission of the Foundation is to actively promote, pursue and steward private support, mainly in southern California, for the advancement of the University. The consolidated financial statements of the Foundation include the financial information of the Cal State Fullerton Alumni Association (the Alumni Association), which is a nonprofit organization within the University. The mission of the Alumni Association is to build lifelong alumni relationships by contributing to a positive image of the University, promoting accomplishments of the University and alumni, providing environments and opportunities for alumni engagement, encouraging educational, social and economic benefits for our student and alumni communities, and advocating on behalf of the University to promote student success. All intercompany accounts and transactions have been eliminated in the consolidation. Financial Statement Presentation The Foundation is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted, temporarily restricted, and permanently restricted. Contributions Contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted support depending on the existence and nature of any donor restrictions. All contributions are considered to be available for unrestricted use unless specifically restricted by the donor. Contributions received that are designated for future periods or restricted by the donor for specific purposes are reported as temporarily restricted or permanently restricted support that increases those net asset classes. When a donor s stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statements of activities as net assets released from restrictions. Donorrestricted contributions whose restrictions are met in the same reporting period are reported as unrestricted support. Permanently restricted contributions and net assets have restrictions stipulated by the donor that the corpus be invested in perpetuity and only income be made available for operations. 7

10 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2015 AND 2014 NOTE 1 Nature of Activities and Significant Accounting Policies (Continued) Use of Estimates and Assumptions Management uses estimates and assumptions in preparing consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. Those estimates and assumptions affect the reported amounts of assets, liabilities, and net assets, the disclosure of contingent assets, liabilities, and net assets and the reported revenues and support and expenses. Actual results can vary from the estimates that were assumed in preparing the consolidated financial statements. Significant items subject to such estimates and assumptions include the valuation of contributions receivable. Cash and Cash Equivalents For purposes of the consolidated statements of cash flows, the Foundation considers all highly liquid, short-term investments with a maturity of 12 months or less when purchased to be cash equivalents. As of June 30, 2015 and at times throughout the year, the Foundation has maintained cash balances at its financial institutions in excess of federally insured limits. Included in cash and cash equivalents at June 30, 2015 and 2014 is $4,513,616 and $2,811,500, respectively, restricted for endowment purposes. Investments The Foundation manages a significant number of individual endowment fund accounts. The purpose of an endowment fund is to ensure that the original contribution is held in perpetuity, its value grows consistent with inflation, and that a portion of the investment income is used for scholarships or other University support. The Foundation pools all of the endowment funds for investment purposes and annually sets a percentage of endowment investment income that may be spent on scholarships and other University support. Substantially all investments are directed toward funds managed by Goldman Sachs Institutional Wealth Management. Investments in marketable securities with readily determinable fair values and all investments in debt securities are valued at their fair value in the consolidated statements of financial position. Unrealized gains and losses are included in the consolidated statements of activities. Investment income is allocated to unrestricted, temporarily restricted, and permanently restricted as stipulated by the individual agreements. 8

11 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2015 AND 2014 NOTE 1 Nature of Activities and Significant Accounting Policies (Continued) Charitable Remainder Trusts The Foundation is the beneficiary of certain charitable remainder trusts held and administered by others. The present value of the estimated future cash receipts from the trusts are recognized as assets and contribution revenues at the dates the trusts are established. (See Note 6.) Distributions from the trusts are recorded as investment returns and the carrying value of the assets is adjusted for the changes in the estimates of future amounts. Charitable remainder trusts amount to approximately $581,000 and $1,285,000 on June 30, 2015 and 2014, respectively, and are included in contributions receivable in the consolidated statements of financial position. Promises to Give The two forms of pledges receivable are unconditional promises to give and conditional promises to give. Unconditional promises to give are recognized as receivables and as revenues in the period in which the Foundation is notified by the donor of his or her commitment to make a contribution. Conditional promises to give are recognized when the conditions on which they depend are substantially met. Deposits Held in Custody for Others As discussed in Note 8 of the consolidated financial statements, funds held by the Foundation on behalf of University-affiliated ancillary organizations are recorded within the consolidated statements of financial position as deposits held in custody for others. The Foundation is acting as an agent for the transactions of these units, and the revenue and expense activity of the affiliate organization is not recorded. These funds are recorded in cash and cash equivalents and investments in the consolidated statements of financial position. Functional Allocation of Expenses The costs of providing the various programs and activities have been summarized on a functional basis in the consolidated statements of activities. Accordingly, certain costs have been allocated among the programs and supporting services benefited. Fair Value Measurements The Foundation recognizes or discloses financial assets, financial liabilities and nonfinancial items at fair value, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. 9

12 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2015 AND 2014 NOTE 1 Nature of Activities and Significant Accounting Policies (Continued) Fair Value Measurements (Continued) The availability of inputs observable in the market varies from instrument to instrument and depends on a variety of factors including the type of instrument, whether the instrument is actively traded, and other characteristics particular to the transaction. For many financial instruments, pricing inputs are readily observable in the market, the valuation methodology used is widely accepted by market participants, and the valuation does not require significant management discretion. For other financial instruments, pricing inputs are less observable in the market and may require management judgment. Tax Status The Foundation is exempt from federal and state income taxes under Section 501(c)(3) of the Internal Revenue Code and 23701(d) of the Revenue and Taxation Code, respectively. In addition, the Foundation has been determined by the Internal Revenue Service to be a public charity. The Foundation recognizes the financial statement benefit of tax positions, such as its filing status as tax-exempt, only after determining that the relevant tax authority would more likely than not sustain the position following an audit. The Foundation is subject to potential income tax audits on open tax years by any taxing jurisdiction in which it operates. The statute of limitations for federal purposes is three years and for state purposes is generally three to four years. Reclassifications Certain reclassifications have been made to the 2014 financial information. There was no impact to the 2014 changes in net assets as a result of these changes. Subsequent Events The Foundation s management has evaluated subsequent events through September 10, 2015, the date the consolidated financial statements were available to be issued for the year ended June 30, 2015, and determined that there were no other items to disclose. 10

13 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2015 AND 2014 NOTE 2 Investments Investments consists of the following: June 30, Precious metal index funds $ 1,314,590 $ 1,532,480 Domestic equity index funds 20,270,053 17,985,959 Fixed income index funds 9,901,982 12,491,204 International equity index funds 7,670,683 7,052,944 Capital partners fund 709, ,267 Commonfund realty fund 570 Emerging markets fund 768, ,398 Hedge funds 3,355,610 3,332,975 Private equity/alternative investments 1,107, ,250 Mutual funds 3,032,391 3,013,482 $ 48,131,960 $ 47,543,529 Investment income, net, is comprised of the following amounts in the accompanying consolidated statements of activities: For the Year Ended June 30, Endowment investment income $ 1,084,559 $ 1,045,470 Less endowment investment expenses ( 200,702) ( 163,488) Net endowment investment income 883, ,982 Realized gain (loss) on sale of contributed investments ( 1,697) 153 Net realized and unrealized gain (loss) on endowments and other investments ( 750,946) 4,452, ,214 5,334,676 Short-term interest income 35, ,960 $ 167,179 $ 5,436,636 11

14 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2015 AND 2014 NOTE 3 Contributions Receivable Contributions receivable includes pledges and trusts that have been discounted at rates ranging from 3.82% to 4.81%. The following is a summary of the Foundation s contributions receivable classified by the expected date of collection: June 30, Receivable in less than one year $ 1,196,452 $ 2,503,425 Receivable in one to five years 5,060,480 5,533,988 Receivable in more than five years 3,801,500 1,006,500 10,058,432 9,043,913 Less discount to reflect present value ( 1,396,689) ( 770,094) Less allowance for doubtful pledges ( 147,210) ( 73,861) Net pledges receivable 8,514,533 8,199,958 Net charitable remainder trusts receivable 580,952 1,284,838 $ 9,095,485 $ 9,484,796 NOTE 4 Net Assets The following is a summary of the Foundation s temporarily and permanently restricted net assets: Temporarily Restricted Net Assets June 30, (Restated) Time and performance restriction contributions receivable $ 2,745,812 $ 2,027,185 Scholarships and campus programs 18,097,883 18,362,795 Endowments 3,036,703 2,874,434 Permanently Restricted Net Assets $ 23,880,398 $ 23,264,414 Scholarships $ 20,461,028 $ 20,016,746 Other University support 29,570,265 28,397,607 $ 50,031,293 $ 48,414,353 12

15 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2015 AND 2014 NOTE 5 Related-Party Transactions The University processes certain transactions on behalf of the Foundation, which consist mainly of payroll-related and contract-service transactions. The Foundation reimburses the University for these transactions on a monthly basis. For the years ended June 30, 2015 and 2014, these reimbursements were $1,994,188 and $1,372,411, respectively. At June 30, 2015 and 2014, the Foundation had $673,846 and $857,691, respectively, payable to the University, which is included in accounts payable and accrued liabilities on the accompanying consolidated statements of financial position. The Foundation receives payments from the University for various advancement activities that totaled $185,551 and $53,139 for the years ended June 30, 2015 and 2014, respectively. The Foundation purchases equipment for various campus program accounts and then transfers title to the University. For the years ended June 30, 2015 and 2014, these purchases were $305,674 and $211,446, respectively. The Foundation receives contributed services from the University for various administrative duties. The value of such contributed services totaled approximately $353,000 and $254,000, for the years ended June 30, 2015 and 2014, respectively. These amounts are not included in the accompanying consolidated statements of activities; however, if recorded, amounts would be recorded as unrestricted contributions and unrestricted administrative expenses. NOTE 6 Fair Value Measurements Accounting standards establish a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to measurements involving significant unobservable inputs (Level 3). The three levels of the fair value hierarchy are as follows: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Foundation has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. The level in the fair value hierarchy within which a fair measurement in its entirety falls is based on the lowest level input that is significant to the fair value measurement in its entirety. 13

16 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2015 AND 2014 NOTE 6 Fair Value Measurements (Continued) The following is a description of valuation methodologies used for assets and liabilities recorded at fair value: Investments: The fair value of the investments is measured using significant other observable inputs. Contributions receivable from charitable remainder trusts: The fair value of the contributions receivable from charitable remainder trusts is estimated as the present value of the projected proceeds that will be received from the charitable remainder trust. Contributions receivable from promises to give: The fair value of the contributions receivable from promises to give for current year gifts is estimated as the present value of the projected proceeds that will be received from the promise to give. Investments in limited partnerships: Since the investments in limited partnerships are valued utilizing unobservable inputs, and do not permit redemption at the measurement date, such investments are classified within Level 3. The limited partnership investments are presented at fair value, as determined by the General Partner. The General Partner s determination of fair value is based upon the best available information provided by the limited partnerships and may incorporate management assumptions. Investments in hedge funds: The Foundation follows the authoritative guidance under US GAAP for estimating the fair value of investments in investment companies that have calculated net asset value (NAV) in accordance with the specialized accounting guidance for investment companies. According to this guidance, a reporting entity is permitted, as a practical expedient, to estimate the fair value of an investment in an investment company using the NAV of the investment without further adjustment, if the NAV of the investment is determined in accordance with the specialized accounting guidance for investment companies as of the reporting entity s measurement date. The guidance also requires certain additional disclosures. Inputs broadly refer to the assumptions that market participants use to make valuation decisions, including assumptions about risk. The Foundation generally uses the NAV reported by the investment fund as the primary input to its valuation; however, adjustments to the reported NAV may be made based on various factors including, but not limited to, the basis of accounting used in determining the NAV, the reporting date of the NAV, and probable sales of any individual investment funds as of the measurement date. An individual investment fund s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes "observable" requires significant judgment by the investment manager. The investment manager considers observable data to be that market data which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary and provided by multiple, independent sources that are actively involved in the relevant market. 14

17 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2015 AND 2014 NOTE 6 Fair Value Measurements (Continued) The investment funds are generally open-end hedge funds, as they typically offer subscription and redemption options to investors. The frequency of such subscriptions and redemptions is dictated by the investment fund s governing documents. The Foundation s total investment in a particular investment fund may be comprised of investments made at different points in time with differing liquidity terms that may result in differences in the effective minimum holding period or lockup or participation in sidepocket investments. Liquidity may also be impacted by gate provisions or redemption suspensions imposed by the board of directors or investment managers of the hedge funds. An investment is generally classified as Level 2 if the Foundation has the ability to redeem its investment with the investment fund at NAV within 95 days after the measurement date upon no greater than 90 days prior written notice, with no other potential liquidity restrictions. All other investments are classified as Level 3. The categorization of an investment fund within the hierarchy is based upon the Foundation s ability to redeem that investment fund and does not necessarily correspond to the investment manager s perceived risk of that investment fund. Transfers between Level 2 and Level 3 are typically the result of changes in the liquidity terms of investment funds or investments made in investment funds where the Foundation s right to redeem the investment without penalty is based on a rolling anniversary date greater than one year apart such that at a given year end, the investment may or may not meet the requirement to be classified as Level 2. The following table presents assets that are measured at fair value on a recurring basis at June 30, 2015 and 2014: Fair Value Measurements at Reporting Date Using Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Assets at Assets Inputs Inputs June 30, 2015: Fair Value (Level 1) (Level 2) (Level 3) Investments (see Note 2) $ 48,131,960 $ 42,958,596 $ 3,355,610 $ 1,817,754 Contributions receivable from charitable remainder trusts 580, ,952 Other receivables from charitable gift annuities 92,209 92,209 $ 48,805,121 $ 42,958,596 $ 3,355,610 $ 2,490,915 15

18 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2015 AND 2014 NOTE 6 Fair Value Measurements (Continued) Fair Value Measurements at Reporting Date Using Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Assets at Assets Inputs Inputs June 30, 2014: Fair Value (Level 1) (Level 2) (Level 3) Investments (see Note 2) $ 47,543,529 $ 42,873,467 $ 3,332,975 $ 1,337,087 Contributions receivable from charitable remainder trusts 1,284,838 1,284,838 Other receivables from charitable gift annuities 95,052 95,052 $ 48,923,419 $ 42,873,467 $ 3,332,975 $ 2,716,977 The following table presents assets that are measured at fair value on a nonrecurring basis at June 30, 2015 and 2014: Fair Value Measurements at Reporting Date Using Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Assets at Assets Inputs Inputs June 30, 2015: Fair Value (Level 1) (Level 2) (Level 3) Contributions receivable from promises to give $ 1,670,031 $ 1,670,031 $ 1,670,031 None None $ 1,670,031 16

19 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2015 AND 2014 NOTE 6 Fair Value Measurements (Continued) Fair Value Measurements at Reporting Date Using Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Assets at Assets Inputs Inputs June 30, 2014: Fair Value (Level 1) (Level 2) (Level 3) Contributions receivable from promises to give $ 853,113 $ 853,113 $ 853,113 None None $ 853,113 As of June 30, 2015 and 2014, the Foundation has no liabilities measured at fair value. Accounting standards require a reconciliation of the beginning and ending balances for assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the period. For the Level 3 assets, the reconciliation is as follows: Contributions Contributions Receivable Receivable From Charitable From Charitable Remainder Trusts Gift Annuities Investments Balance at June 30, 2013 $ 1,029,470 $ 196,057 $ 699,598 Additions 76, ,338 Change in value 179,303 ( 101,005) 37,151 Balance at June 30, ,284,838 95,052 1,337,087 Additions 609,974 Redemptions ( 547,977) Change in value ( 155,909) ( 2,843) ( 129,307) Balance at June 30, 2015 $ 580,952 $ 92,209 $ 1,817,754 17

20 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2015 AND 2014 NOTE 7 Endowments The Foundation s endowments consist of individual donor-designated funds established for the purpose of supporting education. Net assets associated with the endowment funds are classified and reported based on the existence or absence of donor-imposed restrictions. Through December 31, 2008, the Foundation s management and investment of donor-restricted endowment funds was subject to the provisions of the Uniform Management of Institutional Funds Act (UMIFA). In 2006, the Uniform Law Commission approved the model act, Uniform Prudent Management of Institutional Funds Act (UPMIFA) that serves as a guideline to states to use in enacting legislation. Among UPMIFA s most significant changes is the elimination of UMIFA s concept of historic dollar value threshold, the amount below which an organization could not spend from a donor-designated endowment fund, in favor of a more robust set of guidelines about what constitutes prudent spending. Effective January 1, 2009, the state of California has enacted UPMIFA, the provisions of which apply to endowment funds existing on or established after that date. The Foundation has interpreted the California Uniform Prudent Management of Institutional Funds Act as requiring the preservation of the fair value of the original gift as of the gift date of the donorrestricted endowment fund, absent explicit donor stipulations to the contrary. As a result of this interpretation, the Foundation classifies as permanently restricted net assets: (a) the original value of the gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the Foundation. In accordance with UPMIFA, the Foundation considers the following factors in making a determination to appropriate or accumulate donorrestricted endowment funds: (1) The duration and preservation of the endowment fund (2) The purposes of the institution and the endowment fund (3) General economic conditions (4) The expected total return from income and the appreciation of investments (5) Other resources of the institution (6) The investment policy of the institution The Finance and Investment Committee of the Board of Governors is charged with the responsibility of managing the investment of endowment assets for the Foundation. The objective in management of these funds is to achieve an average annual rate of return, over a period of five years, of the S&P 500 Index plus 1% for the aggregate equity investments, and the Barclay s U.S. Aggregate Bond Index plus 0.5% for the aggregate fixed income investments. 18

21 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2015 AND 2014 NOTE 7 Endowments (Continued) The Finance and Investment Committee of the Board of Governors adheres to modern portfolio theory, which has, as its basis, risk reduction through diversification. Diversification is obtained through the use of multiple asset classes, as well as multiple investments within these asset classes. Asset classes that may be used include (but are not limited to) domestic and international corporate stocks and bonds, hedge funds, and government-issued debt securities. The investment strategy is implemented through the selection of external advisors and managers with the expertise and successful histories in the management of specific asset classes. The Foundation s investment policy stipulates that the Board of Governors will distribute earnings on an annual basis to further the purposes of the individual donor-designated funds. The intent of this policy is to provide a stable spending distribution policy to allow university departments to effectively manage programs funded by endowment funds, while maintaining the purchasing power of the endowment funds assets. For the fiscal year ended June 30, 2015, the Foundation s Board of Governors approved earnings distribution equal to 3.50% of the endowment funds market value over a rolling five-year average. Net changes in endowment funds for the year ended June 30, 2015 were as follows: Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets, Beginning of year None $ 9,579,202 $ 48,414,353 $ 57,993,555 Investment return: Investment income 686,292 28, ,261 Net appreciation (realized and unrealized) 818,168 ( 1,943,374) ( 1,125,206) Total investment return 1,504,460 ( 1,943,374) 28,969 ( 409,945) Contributions 162,269 1,685,454 1,847,723 Change in value of charitable remainder trusts receivable ( 97,144) ( 97,144) Other income ( 339) ( 339) Appropriated for expenditure ( 1,547,900) ( 1,547,900) Endowment net assets, end of year ( $ 43,440) $ 7,798,097 $ 50,031,293 $ 57,785,950 19

22 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2015 AND 2014 NOTE 7 Endowments (Continued) Net changes in endowment funds for the year ended June 30, 2014 were as follows: Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets, beginning of year ( $ 59,397) $ 5,863,976 $ 44,862,645 $ 50,667,224 Investment return: Investment income 718,494 43, ,327 Net appreciation (realized and unrealized) ( 659,097) 3,638,922 2,979,825 Total investment return 59,397 3,638,922 43,833 3,742,152 Contributions 23,545 3,305,266 3,328,811 Change in value of charitable remainder trusts receivable 52, , ,368 Endowment net assets, end of year None $ 9,579,202 $ 48,414,353 $ 57,993,555 Included in the Endowment net assets are contributions receivable restricted to the endowment of $6,705,531 and $7,626,523 as of June 30, 2015 and 2014, respectively. From time-to-time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level that the donor or UPMIFA requires the Foundation to retain as a fund of perpetual duration. Deficiencies of this nature, which were reported in unrestricted net assets, was $43,440 as of June 30, 2015, which resulted in a deficit in unrestricted net assets. There were no such deficiencies as of June 30, These deficiencies resulted from unfavorable market fluctuations that occurred after the investment of permanently restricted contributions and continued appropriations for certain programs that were deemed prudent by the Foundation. 20

23 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2015 AND 2014 NOTE 8 Restatement The Foundation s consolidated financial statements for the year ended June 30, 2014 have been restated due to the Foundation incorrectly recording transactions with the Fullerton Arboretum (the Arboretum), an auxiliary on the campus of the University. The Foundation is deemed as an agency for the Arboretum and, therefore, transactions recording revenue and expenses related to the Arboretum have been restated. As a result, cash and investments held for the Arboretum and previously reported on the Foundation s consolidated statement of financial position are now offset with an offsetting payable due to the Arboretum. The effect of the restatement on the consolidated financial statement for June 30, 2014 is as follows: As Previously Reported Adjustment As Restated Consolidated Statement of Financial Position: Deposits held in custody for others $ 1,210,256 $ 1,210,256 Temporarily restricted net assets $ 24,474,670 ( $ 1,210,256) $ 23,264,414 Consolidated Statement of Activities Contributions and gifts, temporarily restricted $ 5,988,559 ( $ 608,759) $ 5,379,800 Campus programs, temporarily restricted $ 792,138 ( $ 34,671) $ 757,467 Net assets released from restrictions, unrestricted $ 7,323,844 ( $ 177,913) $ 7,145,931 Net assets released from restrictions, temporarily restricted ( $ 7,323,844) $ 177,913) ( $ 7,145,931) Campus expenses, unrestricted $ 5,187,353 ( $ 177,913) $ 5,009,440 Change in temporarily restricted net assets $ 4,686,466 ( $ 465,517) $ 4,220,949 Temporarily restricted net assets at beginning of year $ 19,788,204 ( $ 744,739) $ 19,043,465 Temporarily restricted net assets at end of year $ 24,474,670 ( $ 1,210,256) $ 23,264,414 Consolidated Statement of Cash Flows Changes in net assets $ 8,431,750 ( $ 465,517) $ 7,966,233 Contributions restricted for long-term investments, operating activities ( $ 3,305,266) $ 148,837 ( $ 3,156,429) Deposits held in custody for others $ 465,517 $ 465,517 Contributions restricted for long-term investments, financing activities $ 3,305,266 ( $ 148,837) $ 3,156,429 21

24 SUPPLEMENTARY FINANCIAL INFORMATION

25 SUPPLEMENTARY FINANCIAL INFORMATION SCHEDULE OF NET POSITION JUNE 30, 2015 ASSETS CURRENT ASSETS Cash and cash equivalents $ 16,443,217 Short-term investments 0 Accounts receivable, net 75,673 Leases receivable, current portion 0 Notes receivable, current portion 0 Pledges receivable, net 1,196,452 Prepaid expenses and other assets 166,492 Total Current Assets 17,881,834 NONCURRENT ASSETS Restricted cash and cash equivalents 4,513,616 Accounts receivable, net 0 Leases receivable, net of current portion 0 Notes receivable, net of current portion 0 Student loans receivable, net 0 Pledges receivable, net 7,899,033 Endowment investments 48,131,960 Other long-term investments 0 Capital assets, net 0 Other assets 139,306 Total Noncurrent Assets 60,683,915 TOTAL ASSETS 78,565,749 Deferred outflows of resources: Unamortized loss on refunding 0 Net pension obligation 0 Others 0 Total Deferred Outflows of Resources 0 See Independent Auditors Report 22

26 SUPPLEMENTARY FINANCIAL INFORMATION SCHEDULE OF NET POSITION JUNE 30, 2015 (Continued) LIABILITIES CURRENT LIABILITIES Accounts payable 776,033 Accrued salaries and benefits payable 0 Accrued compensated absences current portion 0 Unearned revenue 0 Capitalized lease obligations current portion 0 Long-term debt obligations current portion 0 Claims liability for losses and LAE current portion 0 Depository accounts 0 Other liabilities 0 Total Current Liabilities 776,033 NONCURRENT LIABILITIES Accrued compensated absences, net of current portion 0 Unearned revenue 0 Grants refundable 0 Capitalized lease obligations, net of current portion 0 Long-term debt obligations, net of current portion 0 Claims liability for losses and LAE, net of current portion 0 Depository accounts 0 Other postemployment benefits obligation 0 Pension obligation 0 Other liabilities Deposits held in custody for others 2,012,906 Total Noncurrent Liabilities 2,012,906 TOTAL LIABILITIES 2,788,939 Deferred inflows of resources: Unamortized gain on debt refunding 0 Non-exchange transactions 0 Service concession arrangements 0 Net pension obligation 0 Total Deferred Inflows of Resources 0 NET POSITION Net investment in capital assets 0 Restricted for: Nonexpendable endowments 50,031,293 Expendable: Scholarships and fellowships 3,796,317 Research 0 Loans 0 Capital projects 0 Debt service 0 Other 20,084,081 Unrestricted 1,865,119 TOTAL NET POSITION $ 75,776,810 See Independent Auditors Report 23

27 SUPPLEMENTARY FINANCIAL INFORMATION SCHEDULE OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION FOR THE YEAR ENDED JUNE 30, 2015 REVENUES OPERATING REVENUES Student tuition and fees (net of scholarship allowances of $0) $ 0 Grants and contracts, noncapital: Federal 0 State 0 Local 0 Nongovernmental 0 Sales and services of educational activities 0 Sales and services of auxiliary enterprises (net of scholarship allowances of $0) 0 Other operating revenues 1,565,652 Total Operating Revenues 1,565,652 EXPENSES OPERATING EXPENSES Instruction 2,175,303 Research 118,397 Public service 208,681 Academic support 350,439 Student services 1,027,051 Institutional support 1,297,648 Operation and maintenance of plant Student grants and scholarships 2,076,956 Auxiliary enterprise expenses 492,399 Depreciation and amortization 0 Total Operating Expenses 7,746,874 OPERATING INCOME (LOSS) ( 6,181,222) NONOPERATING REVENUES (EXPENSES) State appropriations, noncapital 0 Federal financial aid grants, noncapital 0 State financial aid grants, noncapital 0 Local financial aid grants, noncapital 0 Nongovernmental and other financial aid grants, noncapital 0 Other federal nonoperating grants, noncapital 0 Gifts, noncapital 6,782,747 Investment income (loss), net 167,179 Endowment income (loss), net 0 Interest expenses 0 Other nonoperating revenues (expenses) 0 Net Nonoperating Revenues (Expenses) 6,949,926 See Independent Auditors Report 24

28 SUPPLEMENTARY FINANCIAL INFORMATION SCHEDULE OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION FOR THE YEAR ENDED JUNE 30, 2015 (Continued) INCOME (LOSS) BEFORE OTHER ADDITIONS $ 768,704 STATE APPROPRIATIONS, capital 0 GRANTS AND GIFTS, capital 0 ADDITIONS (REDUCTIONS) TO PERMANENT ENDOWMENTS 1,587,971 INCREASE (DECREASE) IN NET POSITION 2,356,675 NET POSITION NET POSITION AT BEGINNING OF YEAR, as previously reported 74,630,391 RESTATEMENTS ( 1,210,256) NET POSITION AT BEGINNING OF YEAR, as restated 73,420,135 NET POSITION AT END OF YEAR $ 75,776,810 See Independent Auditors Report 25

29 SUPPLEMENTARY FINANCIAL INFORMATION OTHER INFORMATION JUNE 30, RESTRICTED CASH AND CASH EQUIVALENTS AT JUNE 30, 2015: Portion of restricted cash and cash equivalents related to endowments All other restricted cash and cash equivalents $ 4,513,616 0 Total restricted cash and cash equivalents $ 4,513, COMPOSITION OF INVESTMENTS AT JUNE 30, 2015: Current Current Total Noncurrent Noncurrent Total Unrestricted Restricted Current Unrestricted Restricted Noncurrent Total State of California Surplus Money Investment Fund (SMIF) $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 State of California Local Agency Investment Fund (LAIF) Corporate bonds Certificates of deposit Mutual funds 3,032,391 3,032,391 3,032,391 Money Market funds Repurchase agreements Commercial paper Asset backed securities Mortgage backed securities Municipal bonds U.S. agency securities U.S. treasury securities Equity securities 28,709,633 28,709,633 28,709,633 Exchange traded funds (ETFs) Alternative investments: Private equity (including limited partnerships) 1,107,829 1,107,829 1,107,829 Hedge funds 3,355,610 3,355,610 3,355,610 Managed futures Real estate investments (including REITs) Commodities Derivatives Other alternative investment types Other external investment pools (excluding SWIFT) Other major investments: Precious Metals 1,314,590 1,314,590 1,314,590 Fixed Income Securities 9,901,982 9,901,982 9,901,982 Common Fund - Capital Partners 709, , ,925 Total investments 48,131,960 48,131,960 48,131,960 Less endowment investments ( 48,131,960) ( 48,131,960) ( 48,131,960) Total investments $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ INVESTMENTS HELD BY THE UNIVERSITY UNDER CONTRACTUAL AGREEMENTS AT JUNE 30, 2015: Portion of investments in note 2.1 held by the University under contractual agreements at June 30, 2015 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 See Independent Auditors Report 26

30 SUPPLEMENTARY FINANCIAL INFORMATION OTHER INFORMATION JUNE 30, 2015 (Continued) 2.3 RESTRICTED CURRENT INVESTMENTS AT JUNE 30, 2015 RELATED TO: Amount $ Total restricted current investments at June 30, 2015 $ RESTRICTED NONCURRENT INVESTMENTS AT JUNE 30, 2015 RELATED TO: Amount Endowment investment $ 48,131, Total restricted noncurrent investments at June 30, 2015 $ 48,131,960 See Independent Auditors Report 27

31 SUPPLEMENTARY FINANCIAL INFORMATION OTHER INFORMATION JUNE 30, 2015 (Continued) 3.1 COMPOSITION OF CAPITAL ASSETS AT JUNE 30, 2015: Balance Balance Prior Period June 30, 2014 June 30, 2014 Adjustments Reclassifications (restated) Nondepreciable/nonamortizable capital assets: Land and land improvements $ 0 $ 0 $ 0 $ 0 Works of art and historical treasures Construction work in progress (CWIP) Intangible assets: Rights and easements Patents, copyrights and trademarks Internally generated intangible assets in progress Licenses and permits Other intangible assets Total intangible assets Total nondepreciable/nonamortizable capital assets $ 0 $ 0 $ 0 $ 0 Depreciable/amortizable capital assets: Buildings and building improvements $ 0 $ 0 $ 0 $ 0 Improvements, other than buildings Infrastructure Leasehold improvements Personal property: Equipment Library books and materials Intangible assets: Software and websites Rights and easements Patents, copyright and trademarks Licenses and permits Other intangible assets Total intangible assets Total depreciable/amortizable capital assets Total capital assets $ 0 $ 0 $ 0 $ 0 Less accumulated depreciation/amortization: Buildings and building improvements $ 0 $ 0 $ 0 $ 0 Improvements, other than buildings Infrastructure Leasehold improvements Personal property: Equipment Library books and materials Intangible assets: Software and websites Rights and easements Patents, copyright and trademarks Licenses and permits Other intangible assets Total intangible assets Total accumulated depreciation/ amortization Total capital assets, net $ 0 $ 0 $ 0 $ 0 See Independent Auditors Report 28

32 Transfers of Completed Balance Additions Reductions CWIP June 30, 2015 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0